As the regulation of the refined oil industry tends to be digitalized and intelligentized, the trading of refined oil products has given rise to a variety of new forms through the inclusion of retail subjects such as gas stations that do not carry invoices for purchases and sales or that have a surplus of input invoices into the trading chain. This article intends to analyze the boundaries between false invoicing and illegal purchasing in a case in which the invoiced enterprise obtained invoices for offsetting inputs by separating the invoices from the goods and the introducer was qualified as an illegal purchaser, and to discuss the tax risks of the invoiced enterprise and the actual oil purchasing body in the case on the basis of this analysis.

I. Case Introduction

(I) Basic Facts

Since 2018, Zhang has utilized the advantages and resources of Yang1 in controlling the sales channels of refined oil. Acting as an intermediary between actual oil buyers and invoicing companies, Zhang played a crucial role in introducing, connecting invoicing parties, and facilitating the flow of funds. Through the separation of invoices and goods, they jointly engaged in the illegal purchase of value-added tax special invoices.

Specific operational procedures (as shown in the diagram above) are as follows: After Zhang and the invoicing company agreed on the invoicing procedure fees, the invoicing company provided relevant company qualification materials to Zhang. Zhang then transferred these materials to the oil-selling company provided by Yang1. Subsequently, Yang1 handled the account opening procedures and declared the oil purchase plan on behalf of the oil-selling company. Utilizing their own resources, Yang1 contacted individual gas stations and oil vendors in places like Chengzhou and Hengyang, selling oil at prices lower than the market rate. The buyers, who purchased oil at a lower price, used oil withdrawal cards or withdrawal forms issued in the name of the invoicing company to withdraw oil from the invoicing company's oil depot. The oil purchase payments were then directly transferred to the designated account of the invoicing company or recirculated through Yang1 and Zhang. After receiving the payment, the invoicing company transferred the corresponding invoicing procedure fees to the invoicing company's account, completing the closed-loop transaction. The obtained value-added tax special invoices flowed to the invoicing company, while the refined oil flowed to individual gas stations and oil vendors that did not require invoices. Actual oil buyers obtained affordable prices from Yang1, and Yang1 and the defendant Zhang Jianfei benefited from varying amounts of invoicing fees. The invoicing company illegally profited by using the invoicing fees to offset tax payments.

(II) Outcome of the Case: Qualification as Illegal Purchase

Zhang was convicted of the crime of illegally purchasing value-added tax special invoices and was sentenced to two years and eight months of imprisonment, along with a fine of 180,000 RMB. Zhang has already surrendered the illegally gained proceeds, which were confiscated and turned over to the national treasury.

(III) Conclusion: Where is the Boundary Between Fictitious Invoicing and Illegal Purchases?

In this case, intermediary Zhang was well aware that there were no genuine transactions between the invoicing company and the oil-selling company. Nonetheless, he continued to act as an intermediary, attracting invoicing companies with insufficient input tax credits and actual oil buyers such as private gas stations that did not require invoices. Using the "separation of invoices and goods" method, they illegally purchased value-added tax special invoices. The invoicing party used these invoices to offset tax payments, as they did not have input invoices when purchasing oil. Gas stations, etc., did not declare un-invoiced income when selling to end consumers. According to the "Reply on How to Determine the Nature of Conducting Business Activities in the Name of a Relevant Company and Having the Company Falsely Issue Value-Added Tax Special Invoices" (Law Research [2015] No. 58) issued by the Supreme People's Court Research Office, "…if the subjective intent of the actor does not involve intentionally deceiving and causing a loss of national value-added tax, it is not appropriate to convict them of the crime of fictitious issuance of value-added tax special invoices." In this business model, although there is an objective loss of national tax revenue, it is not due to the invoicing company offsetting tax payments but rather the behavior of actual oil buyers not declaring un-invoiced income when selling externally. Therefore, it is inappropriate to categorize the intermediary as engaging in fictitious invoicing. However, this transaction model does indeed harm invoice management order, making the qualification of illegal purchases more appropriate.

II. Legal Analysis: Not Falsifying National Tax Payments through Deduction Behavior, Does Not Constitute Fictitious Invoicing

(I) Distinct Protection of Legal Interests between Illegal Purchases and Fictitious Invoicing

At the inception of the legislation on the crime of fictitious issuance of value-added tax special invoices, the original intention was to combat the illegal deduction of national tax payments and fraudulent claims of export tax refunds using value-added tax special invoices. This aimed to safeguard the country's circulating tax system. Therefore, the legal interests infringed by fictitious invoicing have a dual nature. First, it involves the management system of value-added tax special invoices, meaning that the issuance of invoices should comply with the requirements of laws such as the "Tax Collection and Management Law," "Invoice Management Measures," and "Interim Regulations on Value-Added Tax." This is to avoid violations of the invoice management order. Second, it pertains to the security of national tax payments, preventing the use of fictitious issuance of value-added tax special invoices to fraudulently offset value-added tax, causing a reduction in national public property. In the era of electronic invoices, general taxpayers can issue value-added tax special invoices after entering invoicing information into the tax control system. Prior to the issuance of the new "Invoice Management Measures," value-added tax special invoices were subject to strict purchase regulations, with only general taxpayers of value-added tax able to purchase them from designated tax authorities with corresponding certificates. Any other entities or individuals were prohibited from engaging in the buying and selling of value-added tax special invoices. According to the "Criminal Law," the legal interest protected by the crime of illegally purchasing value-added tax special invoices is only the maintenance of the invoice management order.

(II) Differences in Objective Behaviors between Illegal Purchases and Fictitious Invoicing

Currently, both academia and judicial practice have generally reached a consensus that the crime of fictitious issuance of value-added tax special invoices is a purposeful and result-oriented crime. That is, to constitute the crime, there must be an intentional act of fictitiously issuing invoices that may cause a loss of national tax revenue. The subjective intent involves the intentional deception and loss of national value-added tax, while the objective aspect includes actions such as issuing invoices that do not correspond to the actual business operations for oneself, others, or facilitating others to do so. For instance, if a person issues invoices without genuine transactions, it essentially falls under fictitious invoicing. Conversely, if the invoicing behavior has a genuine transaction basis, and the actor lacks the subjective intent to deceive national tax payments, it should not be classified as fictitious invoicing. However, the crime of illegally purchasing value-added tax special invoices only requires the objective act of engaging in illegal buying and selling and the subjective awareness of the illegal purchase. Matters such as whether there is a genuine transaction between the parties, the purpose of the transaction, profitability, and whether it causes a loss of national tax revenue are not essential elements but are often considered as sentencing factors.

(III) Distinct Harmful Consequences between Illegal Purchases and Fictitious Invoicing

The crime of fictitious issuance of value-added tax special invoices is a result-oriented crime, with the loss of national tax revenue as a constitutive element. The main cause of the harm is that the invoicing company deducts input tax that should not be deducted. In contrast, the crime of illegally purchasing value-added tax special invoices is an act-oriented crime. As long as the actor objectively engages in illegal buying and selling and subjectively is aware of this behavior, it does not require the causation of a specific harmful consequence.

III. Extended Discussion: Tax Risks for Invoicing Companies and Actual Oil Buyers

(I) Invoicing Company Obtaining Invoices: Qualify as Illegal Purchases or Considered Innocent

First, Invoicing Company's "Separation of Invoices and Goods" to Obtain Invoices, No Tax Losses - Qualifies as Illegal Purchases

In this case, existing evidence cannot rule out the possibility that the invoicing company purchased refined oil from a third party without obtaining invoices, and only obtained invoices from the oil-selling company for compliant sales. There is a reasonable suspicion that the invoicing company engaged in lawful procurement of refined oil and obtained invoices for legitimate sales. In such a situation, where the invoicing company has genuinely purchased refined oil and acquired the right to deduct taxes, obtaining invoices from the oil-selling company is essentially a form of acting as an agent and is fundamentally different from the typical fictitious issuance of value-added tax special invoices without actual goods. According to Article 8 of the Interim Regulations on Value-Added Tax, "The value-added tax paid or borne by taxpayers for the purchase of goods, labor services, services, intangible assets, or real estate shall be the input tax amount." If the invoicing company, based on genuine purchases, obtains invoices from the oil-selling company without exceeding the actual quantity and amount of purchased goods, and there is no overpricing or misalignment, obtaining invoices from external sources is solely for legal sales and to realize their legitimate right to deduction. This behavior does not involve intentional deception to defraud tax payments, and the actual deduction amount does not exceed the legally entitled deduction rights, thus not causing a loss of national tax revenue. According to the provisions of document No. 58 of the Legal Research Office (2015), invoicing companies should not be treated as committing the crime of fictitious issuance. From the perspective of harmful consequences, in this scenario, the behavior only infringes on the order of value-added tax invoice management without affecting value-added tax revenue, making the qualification of illegal purchases more appropriate for invoicing companies.

Second, Legitimate Transfer of Ownership by Invoicing Company, Obtaining Invoices for Tax Deduction is Not a Crime

According to Article 227 of the Civil Code, "Before the establishment and transfer of chattel property rights, if a third party is in possession of the chattel, the person with the obligation to deliver may, before the establishment of transfer, request the third party to return the original thing instead of delivering it." Based on this, China's civil law recognizes the "indirect delivery" method of transferring movable property. In other words, after the invoicing company and the oil-selling company reach a sales agreement for refined oil, the invoicing company can temporarily refrain from taking delivery. Once the intermediary finds downstream buyers (in this case, private gas stations, etc.), the invoicing company establishes a sales relationship with the downstream buyers. It then replaces the delivery with the right to request the return of the goods, allowing the downstream buyers to directly collect the goods from the oil-selling company, completing the entire transaction. In this form of ownership transfer, obtaining invoices by the invoicing company aligns with a normal commercial transaction model and does not constitute a crime.

Additionally, if it is determined that the invoicing company did not establish a genuine sales transaction with the oil-selling company and did not purchase refined oil from an external third party, according to the Supreme People's Court's notice on the application of the Decision of the Standing Committee of the National People's Congress on Penalizing the Crimes of Falsifying, Forging, and Illegally Selling Value-Added Tax Special Invoices (Law Letter [1996] No. 30), if the invoicing company obtains value-added tax special invoices without actual goods transactions, constituting the issuance of value-added tax special invoices, it is a crime of fictitious issuance.

(II) Actual Oil Buyers Selling Refined Oil Without Invoices: Hidden Income Qualifies as Tax Evasion

In this case, the actual oil buyers are private gas stations and oil vendors serving end consumers such as individual drivers. As downstream buyers typically do not request invoices, the actual oil buyers do not need to obtain invoices when making purchases. This allows them to hide sales income through an "off-the-books" accounting method, evading tax payments. This is the root cause of the tax loss in this transaction model. The gas stations, which actually purchase oil, do not confirm sales income and do not declare untaxed income when selling to end consumers. According to Article 63 of the Tax Collection and Management Law, if actual oil buyers fail to record or underreport income in their books, it constitutes tax evasion. Besides paying back taxes and late fees, they may also be subject to a fine of more than 50% and up to five times the unpaid or underpaid tax amount. If it constitutes a crime, they may also be held criminally responsible for tax evasion.

IV.Summary: Caution Should Be Exercised in Qualifying Fictitious Invoicing Crimes

The crime of fictitious issuance of value-added tax special invoices is characterized by both subjective and objective elements. It requires intentional deception to defraud value-added tax in the subjective aspect and actual national tax losses in the objective aspect for the crime to be established. Otherwise, merely engaging in fictitious invoicing behavior, thereby violating the order of value-added tax invoice management, may lead to the conviction of the crime of fictitious issuance and imposition of severe penalties. This approach would contradict the principle of proportionality between the crime and its punishment.

It is essential to note that the crime of fictitious issuance of value-added tax special invoices does not necessarily implicate all parties involved. If the upstream invoicing party commits fictitious issuance, it does not automatically mean that the downstream receiving party is also guilty of fictitious issuance, and vice versa. Even though there is a connection between the invoicing party and the receiving party, involving the issuance and acceptance of invoices for the same business transaction, these entities may have different subjective understandings of the invoicing and receiving actions. When the social danger of invoicing and receiving actions varies, it is crucial to carefully handle the qualification of actions by both upstream and downstream entities based on the specific circumstances. Avoiding generalizations is essential to adhere to the principle of consistency between subjective and objective elements, preventing misclassification of actions.